Going to Iraq was a frustrating business from the start for Steve McQueen. The artist was flown to Basra and then not allowed to go anywhere. "I knew I'd be embedded with the troops, but I didn't imagine that meant I'd virtually have to stay in bed. It was ridiculous. We went to see some schools the army was rebuilding. I could talk to the guys but that was it." McQueen was told that if he wandered off on his own, he'd get no support. "It was too hostile an environment. Obviously for the military you are just a token artist. You're in the way."

He was in Iraq for six days as the UK's official war artist, not nearly enough time to get acclimatised, or to begin to know what to do. The plan was that he would present work the following year. The war escalated, and McQueen still had no project, no film, no plans. The US military was approached to see if McQueen could visit Iraq again with them. The plan fell through. "Obviously, it was going to be impossible to make a film. I was living and breathing the fact that I didn't know what to do every day.

"I was thinking of something else, relaxed, sticking a stamp on my tax return in Amsterdam. The stamp had a picture of Vincent van Gogh on it. And then it hit me - a stamp has a beautiful scale, the proportions are right, the image, it is recognisable, and then it goes out into the world, who knows where. Perfect. Wonderful."

The result was For Queen and Country; unveiled in the Great Hall at Central Library, Manchester, it's a co-commission by Manchester International Festival and the Imperial War Museum. McQueen has used a large oak cabinet with sliding vertical drawers to present 98 sheets of postage stamps. Each sheet depicts a different member of the armed services who has died in the conflict, and each sheet tells us who is depicted, and when they died. The sheets are presented in the chronological order of the deaths. "Every time you pull out a sheet of stamps, there is something in the physical contact and intimacy you have with each sheet of images, and the time it takes to look at them, before replacing them and moving on. But the real point is to have the stamps made available for use."

The Royal Mail's director, Allan Leighton, has turned down a request by McQueen to have the work turned into real commemorative stamps. McQueen mixes exasperation with an acknowledgement of the absurd humour of dealing with officialdom.

"The Ministry of Defence were polite about the idea of the stamps. I gave the MoD my idea, and this man asked me, why couldn't I do a landscape? I said, 'Are you telling me you are ashamed of these people? A landscape? Hello?'

"Then they tried to stop me getting in touch with the families. So we hired a researcher. Of the 115 families we tried to contact, we got 102 responses. Four said no, and 98 said yes. We had a sort of cut-off point. We didn't want to ask people who had suffered their losses too recently. You need to give people time to grieve. And I know it is one thing to show your son or daughter in a cabinet in a library, another to put them on a stamp that you can buy and stick on a letter. But I think the majority do want it. When the families came to the unveiling, it was one of the most humbling experiences of my life. People were very moved.

"This is the hardest thing I ever did," says McQueen, who was first invited to be the war artist by the Imperial War Museum's Art Commissions Committee in 2003. "Even after four years, we are not there yet. The problem is that you think people are supporting you, then you discover they're not." Resistance to McQueen's project has taken the form of delay, back-tracking and obfuscation. As soon as one obstacle disappears, another is invented. The artist went to see Leighton to discuss having the stamps used for real. "The temperature dropped as soon as we walked into the room. The next thing you know, you're on the street."

What isn't obvious is where McQueen stands in relation to the war. "Like everyone else in the country, I have my feelings about the war. But the project is the project. Strangely, it seems that for those who are against the war, my project is regarded as a good thing. For people who support the war, it is regarded as a good thing too. It is not pro or anti-war. This work is like a sphere - roll it this way, roll it that way. In the end, it is an art work.

"When we hear about all the men, women and children killed in Iraq, we are numbed to it. I'm pointing out that these people are all victims, too. What happened to them all was a consequence of their participation. The MoD try to say that such and such many soldiers died in action - they don't include or count all the people who died in friendly fire, in traffic accidents and so on. Some were suicides. They chopped them all out. They deleted them. They're all part of this war.

"Nor do I think that soldiers have to have been manning a gun emplacement with one arm tied behind their back and doing a double somersault in order to be remembered or to get a medal. An 18-year-old kid gets killed by a landmine or catches a bullet. He has contributed his life."

Logistically, how many different stamps can there be? "Why not use all of them? What's the problem? All first class. The Royal Mail will make money. Give some to the families."

A recent McQueen exhibition in Paris included an installation, Pursuit. In a dark basement, the walls were lined with mirrored plastic sheeting, and a screen in the middle of the room was lit by odd flickers that bounced off the walls. You lost yourself in the occasional reflections that come at you from all sides. There were sounds, as if someone were fighting their way through tangled undergrowth. It was utterly disorientating. McQueen has never said what he was filming. As with Queen and Country, he makes us do the work, provokes us into deciding where we stand. It is a complicated business.

But it remains difficult to fit Queen and Country into the larger context of McQueen's art. "Maybe it doesn't fit. But I have never wanted anyone tripping over my tail. If people anticipate my next move, thinking I'll turn right, I'll go left. I have never been interested in an easy narrative. I don't want to make things easy, either for the audience, or for myself"

·For Queen and Country is at Manchester Central Library until July 14. The Guardian is media partner of Manchester International Festival